Reinventing your business model? Forget it [most of you!]

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Whilst I greatly admire Prof Clay Christensen’s work, and this one in Harvard Business review with colleagues Mark Johnson and Henning Kagermann is good guidance in some cases, it is plain dangerous for most organizations right now.

The basic idea is fine – many innovations like iPod/iTunes will only work if they redefine how money is made, by whom, for what. Large corporations may need to develop new models in order to exploit radical innovations.  But that’s not the situation facing most firms, especially right now. 

After a few years of chasing intriguing but fanciful new opportunities, many businesses have over-extended themselves, and neglected the core business that makes reliable money. The article reports that 50% of executives believe the hype that they should be seeking ‘business model innovation’ – hardly surprising, since they have been heavily sold this message by HBR and others over several years.

What most actually need to do right now is re-focus on what works and do it effectively. If they spend their time instead looking still more avidly for some fantasy new world, they may find there’s no business left to take there.

I am not saying for a moment that business model innovation is a bad idea – just not relevant for the vast majority of firms. As the article notes, “Fully 11 of the 27 companies born in the last quarter century that grew into the Fortune 500 in the last decade did so through business model innovation.” So … 16 didn’t, and 473 stayed there without doing so – and that’s ignoring the many cases of attempted inovation that failed catastrophically. Anyone still backing eBay using Skype to transform its payment model, or Time-Warner using AOL to transform delivery of media content, or Hyundai to dominate the car industry through eliminating dealers from the business model?

The article is also pretty generous in defining what counts as business model innovation, e.g. Apparently, Tata didn’t launch low-cost cars to low income families in India, it offered a transforming proposition to families travelling on scooters.

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Comments

  1. Alex Osterwalder  December 7, 2008

    Kim, you have a point as to short term crisis management. However, over the long term serious business model innovation is about competitiveness and survival. Consider these examples:

    * Xerox introduced the way photocopiers are rented today
    * Gillette makes us buy razors differently
    * Southwest/easyJet/Ryanair allow us to fly cheaply
    * Nespresso brings us great coffee (and George Clooney)
    * Ikea brought us quality design furniture at affordable prices
    * …

    These are all examples of companies that have brought new ways of doing business to their industries. It is not about over-expanding. It is about redefining the way business is done…

    Companies that don’t constantly question themselves how they create value will have a difficult time to survive over the long term…

    Kind regards, Alex

    Have a glance at my blog if you want to learn more about business model innovation:
    http://business-model-design.blogspot.com

    reply
  2. Kim Warren  December 7, 2008

    I don’t mean to dismiss the idea altogether Alex – but the examples you quote all date from many years ago, and what management have been doing since is to relentlessly drive forward what works. My worry is that management of troubled firms now may waste time and effort hunting for some magic innovation that isn’t available, rather than getting their basically sound business model working again as it should.
    My post on the strategy life-cycle looks at Blockbuster, whose performance went wobbly years before it was threatened by Netflix, and when that business model innovation was spotted, the company could in principle have responded with a much stronger response than it did – it didn’t need to invent the innovation itself.

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  3. Ralf Lippold  December 9, 2008

    Hi Kim,

    It makes me wonder whether companies in trouble really know what their key value proposition is that is and will be appreciated by customers (and potential ones!).

    Take for example the auto industrie, they struggle for years, haven’t got a clue on how to get on new tracks, and even manage that CO2-policies are extended even further by government.

    Transformational change that is truely needed to shift the thinking and consequently the acting starts small and innovations always start like that. Small, unseen by the rest, looking a bit silly, no big return, not even big investments in the first place and yet without focusing on a vision (a shared one!) there will be no bright future for those companies (and others alike).

    Peter Senge says about Tranformation Change:

    http://www.solonline.org/repository/file?item_id=9002726

    The CUSTOMER defines what is valued in the future and companies have definitely adapt to that which they for long haven’t done as they were pushing their products and services onto the market (customer) by marketing and selling.

    Just my 2 cents on the issue which is a systemic and big one for the next time to come

    Ralf

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  4. Kim Warren  December 9, 2008

    You are rather hard on the auto industry Ralf – the US majors may have been slow to identify new opportunities and develop products to serve them, but the likes of BMW, Toyota, Honda, Audi are awesome, not just technically, but strategically.
    Sorry, but ‘transformational change’ is very rarely appropriate. As other posts here have pointed out, the most powerful firms we all know have got that way by relentlessly improving and extending what works over many years. The big-shift examples like iPod are very, very rare, and it is completely irrelevant for the vast majority of organizations to go looking for them.

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